“We find that the majority of U.S. commercial health insurance markets are highly concentrated,” the report concludes. “Our findings should prompt federal and state antitrust authorities to vigorously examine the competitive effects of proposed mergers between health insurers.”

The 2017 edition of the report presents 2016 data on commercial enrollment in fully and self-insured health maintenance organizations (HMO), preferred provider organizations (PPO), point-of-service (POS) plans, consumer-driven health plans (CDHP) and public health exchanges (EXCH). The report, available for purchase at the AMA Store, is one facet of the AMA’s efforts to promote competition in health insurance markets. Learn more about the AMA’s research in this area.

Mergers attracting more scrutiny

The AMA report recalls how the U.S. Department of Justice (DOJ) and multiple state attorneys general moved to block Anthem’s attempt to acquire Cigna and Aetna’s proposed acquisition of Humana in 2015. Both mergers were eventually abandoned.

“After years of largely unchallenged consolidation in the health insurance industry, a few recent attempts to consolidate have received closer scrutiny than in the past,” the report notes.

“Previous versions of the AMA study played a key role in efforts to block the proposed mega-mergers by helping federal and state antitrust regulators identify markets where those mergers would cause anti-competitive harm,” AMA President David O. Barbe, MD, MHA, said.

But, despite this new scrutiny, much of the nation’s health insurance landscape remains highly concentrated.

According to the report:

69 percent of the combined HMO-PPO-POS-EXCH markets are highly concentrated.

94 percent of HMO markets are highly concentrated

86 percent of PPO markets are highly concentrated.

100 percent of POS markets are highly concentrated.

To measure market concentration, the researchers used the Herfindahl-Hirschman Index (HHI), a measure used by the DOJ and Federal Trade Commission (FTC) as an indicator of market competition. The HHI is the sum of the squared market shares of all firms in a market. (So, if a market has four companies and each has a 25 percent market share, the HHI would be 2,500 or 252 + 252 + 252 + 252.) Smaller numbers indicate greater competition. An HHI of 10,000 indicates a monopoly.

The DOJ and FTC consider a market with an HHI above 2,500 to be “highly concentrated,” a market with an HHI between 1,500 and 2,500 is “moderately concentrated,” and a market with an HHI below 1,500 is considered “unconcentrated.”

For the combined HMO-PPO-POS-EXCH market, 43 percent of MSAs had one insurer with a market share of 50 percent or greater.

For HMOs alone, 73 percent of MSAs had one insurer with a market share of 50 percent or greater. In 34 percent of MSAs, one insurer had an HMO market share of 70 percent or greater.

In the PPO market, 58 percent of the MSAs had one insurer with a market share of 50 percent or greater. In 25 percent of the MSAs, one insurer had a market share of 70 percent or greater.

Barriers to entry reduce competition

In addition to consolidation, the ability to exercise market power is exacerbated by barriers that make it difficult for new companies to enter a market. These include state regulatory requirements, the cost of developing physician networks, and developing enough business to spread risk.

“If entry were easy, neither high market shares nor high concentration levels would necessarily translate into higher premiums because potential entry would force insurers to keep premiums in check,” the report states. “However, barriers to entry allow insurers with market power to charge premiums above competitive levels for an extended period of time.”

Overall, the commercial health insurance markets became more concentrated in 27 states.

Alabama is the state with the least competitive health insurance market. One insurer, Blue Cross Blue Shield of Alabama, had an 83 percent market share in 2016. Delaware follows on the list, with one insurer, Highmark, with a 68 percent market share in the state. They are followed in the top 10 by Hawaii, South Carolina, Louisiana, Michigan, Kentucky, Vermont, Alaska and Illinois.

Anthem has the biggest geographic footprint, and was the largest health insurer by market share in 82 of 389 metropolitan areas examined. Health Care Service Corp. was second with a market share lead in 42 metropolitan areas, followed by UnitedHealth Group with a market share lead in 26 metropolitan areas.

Data from the report were obtained from the Decisions Resources Group. The report was prepared by the AMA Division of Economic and Health Policy Research and led by José R. Guardado, PhD, senior economist, Economic and Health Policy Research, and Carol K. Kane, PhD, director, Economic and Health Policy Research.